EURO GOVT-2-yr debt yld at record low on periphery debt woes

* Periphery euro zone debt yield spreads vs Bunds widen

* Other core sovereign debt yield spreads also edge out

* U.S. Treasuries, Gilts extend gains as stocks retreat

* Flight-to-quality hoists Bund futures to 10-month highs

By Emelia Sithole-Matarise

LONDON, Feb 5 (Reuters) - The euro zone two-year benchmark bond yield plumbed a euro era record low on Friday as mounting concern over highly-indebted euro zone economies sent investors scuttling out of riskier assets into quality government bonds.

Premiums investors demand to buy euro zone government bonds other than liquid German benchmarks rose broadly while the cost of insuring Greek, Portuguese and Spanish sovereign debt against default hit record highs.

The price of insuring other sovereign debt across the 16-nation single currency bloc rose broadly, according to five-year credit default swap prices from CMA DataVision.

In typical flight to quality, U.S. Treasury T-note futures rose to their highest since December and the dollar hit a seven-month high against a currency basket.

The pan-European FTSEurofirst 300 index fell 1 percent with jitters about the fiscal problems plaguing southern euro bloc states exacerbated by investor anxiety over an upcoming key U.S. jobs report.

"Seeing the two-year Bund yield coming down to historic lows below 1.0 percent, this has no fundamental justification. This is safe-haven, this is flight to quality, this is where to put the money, at the front-end of triple-A (rated paper)," said Kornelius Purps, a UniCredit strategist in Munich.

"There are some players out there driving the market, CDS and so on, in a way that promises short-term profits."

The two-year Schatz yield fell as low as 0.986 percent. By 0956 GMT, it was three basis points down on the day at 1.015 percent while the 10-year Bund yield was two basis points lower at 3.130 percent. Bond prices and yields move inversely.

March Bund futures rose 42 ticks to 124.12, not far from the 10-month peak of 124.21 hit earlier in the session.

Tracking Bunds, U.S. 10-year note futures rose to 118-37/64 -- the highest since Dec. 10. The contract was last up 19/32 on the day at 118-18/32.

VOLATILE MARKETS

The Italian/German 10-year government bond yield spread widened to 94 basis points from 89 bps late Thursday while the equivalent Greek spread grew 17 bps on the day to 368 bps.

The gap between Austrian 10-year bonds and Bunds expanded to as much as 58 basis points, its widest since September. Austrian government bonds had so far proven relatively resilient to the pressure on peripheral government debt, with that spread over Bunds hovering largely unchanged around 48 bps in January.

"There are renewed concerns on sovereign risk but more than a default concern is about who has the ability to buy at the moment when risks, volatility is exploding," said Patrick Jacq, BNP Paribas interest rate strategist in Paris.

"Everybody is mark to market, there's no bidders for these paper. So everybody is buying the Bund."

Purps and other strategists say that a stronger-than-expected reading of U.S. non-farm payrolls could help restore some calm in the market, but warned the "carnage will intensify" on a negative surprise in the influential report due at 1330 GMT.

(Additional reporting by Ian Chua; Editing by Andy Bruce)